OCBC BANK (MALAYSIA) BERHAD REPORTS AND FINANCIAL STATEMENTS 31 DECEMBER Company No W

Transcription

1 REPORTS AND FINANCIAL STATEMENTS 31 DECEMBER

2 REPORTS AND FINANCIAL STATEMENTS 31 DECEMBER 2009 CONTENTS PAGE DIRECTORS REPORT 3-18 STATEMENT BY DIRECTORS 19 STATUTORY DECLARATION 19 INDEPENDENT AUDITORS REPORT BALANCE SHEETS 22 INCOME STATEMENTS 23 STATEMENTS OF CHANGES IN EQUITY CASH FLOW STATEMENTS NOTES TO THE FINANCIAL STATEMENTS

3 DIRECTORS REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009 The Directors have pleasure in submitting their report and the audited financial statements of the Group and the Bank for the financial year ended 31 December PRINCIPAL ACTIVITIES The principal activities of the Group and of the Bank are banking and related financial services. The principal activities of the subsidiary companies during the financial year are in the businesses of Islamic Banking ( IB ), lease financing and the provision of nominees services. Other than above, there have been no significant changes in these activities during the financial year. FINANCIAL RESULTS GROUP BANK RM 000 RM 000 Profit before taxation and zakat 813, ,920 Taxation (205,197) (197,807) Zakat (10) 0 Net profit attributable to shareholders 607, ,113 DIVIDENDS Dividends paid by the Bank since the end of the previous financial year consist of dividend of 4.51% per annum (on total paid up amount) on 18 March 2009 and 18 September 2009 amounting to RM9.0 million and RM9.1 million, respectively, on the fully issued and paid-up non-cumulative non-convertible perpetual preference shares of the Bank. The Directors now recommend a net cash dividend of 4.51% amounting to RM8.95 million to the preference shareholders payable in March 2010 and a final gross dividend of 20.0 sen per share less tax in respect of the current financial year amounting to RM43.13 million on the fully issued and paid-up ordinary shares of the Bank which is subject to approval of members at the forthcoming Annual General Meeting of the Bank. 3

4 DIRECTORS REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009 (continued) SHARE CAPITAL There were no changes in the authorised, issued and paid up share capital of the Bank during the financial year. RESERVES AND PROVISIONS There were no material transfers to or from reserves or provisions during the financial year other than those disclosed in the financial statements and notes to the financial statements. BAD AND DOUBTFUL DEBTS AND FINANCING Before the financial statements of the Group and the Bank were made out, the Directors took reasonable steps to ascertain that proper action had been taken in relation to the writing off of bad debts and financing and the making of allowance for doubtful debts and financing, and satisfied themselves that all known bad debts and financing had been written off and that adequate allowance had been made for bad and doubtful debts and financing. At the date of this report, the Directors are not aware of any circumstances which would render the amount written off for bad debts and financing, or the amount of the allowance for doubtful debts and financing, in the financial statements of the Group and of the Bank inadequate to any substantial extent. CURRENT ASSETS Before the financial statements of the Group and the Bank were made out, the Directors took reasonable steps to ensure that any current assets, other than debts and financing, which were unlikely to realise in the ordinary course of business, their value as shown in the accounting records of the Group and of the Bank had been written down to an amount which they might be expected so to realise. At the date of this report, the Directors are not aware of any circumstances which would render the values attributed to the current assets in the financial statements of the Group and of the Bank misleading. VALUATION METHODS At the date of this report, the Directors are not aware of any circumstances which have arisen which render adherence to the existing methods of valuation of assets or liabilities of the Group and of the Bank misleading or inappropriate. 4

5 DIRECTORS REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009 (continued) CONTINGENT AND OTHER LIABILITIES At the date of this report there does not exist:- a) any charge on the assets of the Group and the Bank which has arisen since the end of the financial year which secures the liabilities of any other person, or b) any contingent liability in respect of the Group and the Bank which has arisen since the end of the financial year other than in the ordinary course of banking business. No contingent or other liability of the Group and the Bank has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group and the Bank to meet their obligations as and when they fall due. CHANGE OF CIRCUMSTANCES At the date of this report, the Directors are not aware of any circumstances, not otherwise dealt with in this report or the financial statements of the Group and the Bank that would render any amount stated in the financial statements misleading. ITEMS OF AN UNUSUAL NATURE The results of the operations of the Group and the Bank for the financial year were not, in the opinion of the Directors, substantially affected by any item, transaction or event of a material and unusual nature. There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely to affect substantially the results of the operations of the Group and the Bank for the financial year in which this report is made. FINANCIAL PERFORMANCE The Bank and its subsidiaries registered a net profit of RM608 million for the financial year ended 31 December 2009, a marginal (-1%) decline compared to the RM617 million of the previous year. The lower net profits are attributable mainly to an 80% increase in provisions from RM103 million in 2008 to RM185 million in 2009 result of the more challenging economic environment caused by the global financial crisis. This negative impact on profits was, however, cushioned by a strong 6% increase in operating profits from RM942 million to RM998 million. Total income rose by RM55 million or 4% to RM1.6 billion as a result of an increase in net interest income by RM41 million to RM1 billion. This was offset by a drop in non-interest income by RM17 million or 4% to RM415 million mainly due to lower gains in revaluation of derivatives. Over the same time, Islamic banking income increased by RM31 million to RM144 million. Overheads were marginally lower at RM597 million compared to the previous year s RM598 million, as the bank continued to invest in capability building activities and the opening of new Islamic banking branches. Specific allowances rose 61% to RM185 million compared to RM115 million last year due to higher provisioning, while general allowance made for loans growth halved to RM29 million for The net NPL ratio increased to 2.42% compared with 1.99% in December The Group s gross loans outstanding as at 31 December 2009 stood at RM32.6 billion, marking a RM1.6 billion or 5% increase for the full year. The increase came mainly from consumer and business loans of RM0.7 billion and RM0.9 billion respectively. Consequently total assets grew 11% from RM48 billion to RM53 billion. Shareholders funds strengthened to RM3.7 billion while the Bank s risk weighted capital ratio (RWCR) as at 31 December 2009 stood at 12.37%. 5

6 DIRECTORS REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009 (continued) ACTIVITIES & ACHIEVEMENTS OCBC Bank (Malaysia) Berhad ( OCBC Bank ) has been operating in Malaysia for almost eight decades and is today among the country s largest foreign banks. It has a staff strength of over 4,000 employees and a network of 29 conventional banking branches and five Islamic ones, offering a range of specialist financial services that includes consumer, corporate, investment, premier and transaction banking, as well as global treasury services to meet the needs of its customers across communities. OCBC Bank continues to cater to the needs of a wide range individuals of diverse demographic backgrounds and also corporate and SME ( Small Medium Enterprise ) customers, sole proprietorships and partnerships. Of particular note today is the wide acknowledgement OCBC Bank has received as one of the leading banks for SMEs in Malaysia. In 2009, OCBC Bank was, for the second year running, named Best Foreign Cash Management Bank in Malaysia by AsiaMoney in its Cash Management Poll involving large, medium and small corporates. OCBC Bank also gained top ranking in MYR Currency Vanilla & Derivatives and Interest Rate Vanilla & Derivatives for both 2008 and 2009 in AsiaRisk s annual poll. It was also named Best Corporate/Institutional Internet Bank in Malaysia by Global Finance magazine, having also won the accolade previously in 2005 and 2006 as well; and Top SMI supporter (Foreign Bank Category) by Credit Guarantee Corporation (CGC) for the third consecutive year. OCBC Bank also received a number of investment banking accolades, namely Benchmark Deal of the Year 2008 by Malaysian Rating Corporation (MARC), Country Deals of the Year 2008 by AsiaMoney and Blueprint Award for Outstanding Deal of the Year 2008 by RAM Rating Services Berhad (RAM Ratings). Capping off this series of acknowledgements was the upgrading of OCBC Bank s long-term financial institution rating by RAM Ratings, from AA1 to the highest attainable level of AAA, an affirmation of the improving trend in the Bank s credit fundamentals and its commendable operating track record since inception. Earlier in the year, OCBC Bank had increased its Tier 1 capital through the successful placement of its Innovative Tier 1 Capital Securities (IT1 Securities) totaling RM400 million, which is now rated AA2 upgraded from AA3 by RAM Ratings. During the course of 2009, OCBC Bank continued its nationwide branch transformation exercise as part of a regional initiative aimed at offering customers enhanced levels of service, interaction and convenience. The sizeable Penang branch is among the most recent to showcase the new look, while the Subang Jaya branch was relocated to a more strategic area and also took on the new look. Another highlight of the year was the roll-out of four new OCBC Al-Amin Bank Berhad ( OCBC Al-Amin ) branches, following commencement of operations on 1 December 2008 and the opening of the first branch at Jaya One, Petaling Jaya. The flagship main branch of this wholly-owned Islamic banking subsidiary of OCBC Bank was duly opened in Kota Damansara in November 2009, complete with a SME Centre. The other three branches that opened during 2009 are located at Sungai Petani, Kedah; Skudai, Johor; and Wangsa Maju, Kuala Lumpur. OCBC Al-Amin will continue to reinforce its existing strong distribution channels to acquire new customers and to offer innovative solutions to its existing client base. OCBC Al-Amin is also expected to leverage on infrastructure within OCBC Group and the strong OCBC brand name to broaden its customer base and retain its position as a provider of innovative products. In business banking, OCBC Bank continued to perform well, witnessing strong growth in total income involving both SMEs and large corporates, catalysed, in part, by strong initiatives in new customer acquisition and focus on investment banking, trade and treasury. Despite the challenging market conditions, the treasury business performed well, capturing market opportunities through prudent risk management, the introduction of innovative products and new customer acquisition exercises. 6

7 DIRECTORS REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009 (continued) ACTIVITIES & ACHIEVEMENTS (continued) OCBC Bank also played a prominent role in supporting the Government s efforts to assist businesses experiencing tight cashflow during the economic slowdown. OCBC Bank was a top contributor among commercial banks, as evidenced by the efforts expended to reach out to businesses through various government-initiated funding schemes. OCBC Bank set up a Trade Finance Academy to provide courses aimed at educating the staff of its business banking customers on the latest technical and practical skills required to engage effectively in international trade. OCBC Bank introduced an instant trade transaction update service called Speedy Advice through which businesses can now receive trade finance and services transaction advices via auto-fax as soon as OCBC Bank completes the transaction. In transaction banking, OCBC Bank began to offer Shariah-compliant cash management solutions as well, to complement the conventional offering. OCBC Bank was also among the first to launch the provision of crossborder trade settlement in Renminbi with China. With this, corporate customers are now able to settle their trade transactions as well as perform telegraphic transfers in Renminbi to and from hundreds of companies in Mainland China that are eligible under the country s Renminbi trade settlement pilot programme. Despite the challenging business environment, OCBC Bank s investment banking efforts topped the Thomson Reuters International Financial Review (IFR) s Malaysia Loans Mandated Arranger league table for 2009 for lead arranging fund raising exercises in aggregate value of RM8 billion for corporate clients including government linked agencies. To meet the banking needs of the country s rapidly growing base of mass affluent individuals, OCBC Bank continued to actively market iq, an innovative cash flow management solution for mass affluent individuals and a special concierge service. In the area of wealth management, OCBC Bank made significant progress in deposits growth and investment sales with OCBC Stabiliser, a strategic programme which allows investors to benefit in times of crisis through a diversified equity portfolio, and OCBC Builder for customers seeking a unique blend of high-interest savings and a long-term endowment plan. Wealth management fee income grew year-on-year by approximately 15% in 2009, driven by a robust bancassurance and structured investment business. OCBC Bank also introduced the OCBC Mighty Savers Weekend programme as a way to offer basic banking products and services to children at selected branches every first weekend of the month. In the area of secured lending, OCBC Bank launched a first-of-its-kind home loan package based on a unique mortgage lending rate (MLR). MLR-based packages, such as the inaugural Ideal Mortgage, are priced more competitively than BLR-based ones and are flexible enough for borrowers to make a significantly lower investment outlay on their loans during the lock in period. During the year, OCBC Bank also reengineered the OCBC-Great Eastern co-branded credit card to enable policyholders to enjoy the highest rebates on insurance premiums in the market. OCBC Bank also forged a partnership with Great Eastern Life Assurance (Malaysia) Berhad (GELA) to market the latter s bancassurance products at all branches nationwide. OCBC Bank continued to apply leverage on its strategic partnership with GELA to cross-sell more credit card, bancassurance and mortgage products to their combined customer bases. 7

8 DIRECTORS REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009 (continued) MAJOR BUSINESS PLANS & ACTIVITIES FOR YEAR 2010 Moving into 2010, our business banking efforts will continue to revolve round the large corporates, commercial banking and retail commercial banking segments. For large corporates, we will continue to strive to become one of the top five bankers whilst being the principal banker to the medium-sized corporates. We will also focus on more cross-border activities, working with our overseas branches in cross-selling non-loan products to boost fee income. On the commercial banking front, we will continue to acquire new relationships with key or dominant industry players as well as to support export oriented customers and focus on acquiring regional trade oriented customers with cash management services and mobilising our resources in accordance with available opportunities. In retail commercial banking, we would continue to invest in process improvements to offer quicker turnaround time to achieve higher revenue generation. For the consumer segment, we will continue to build our franchise with a strong focus on growing share in the mass affluent segment with focus on a comprehensive product suite of offerings to our customers. We will also solidify our partnership with Great Eastern Life Assurance and other business partners with the aim of widening our reach, product offering and acquisition capabilities. New investments will be made to open new branches and transforming our existing ones to heighten our presence and brand awareness among consumers. Alongside these, we will continue to build our home loans and consumer deposits based, and build the unsecured loans business to optimise loan margins and sustain revenue growth. Structure investments and bancassurance related initiatives will be aimed at boosting our feebased income. In addition to improving financial performance for our consumer business we will also commit ourselves to raising our service deliverables across all delivery channels and customers touch points through simplified customer engagement models and improved delivery. Our global treasury business will continue to act as a centre of excellence, an endeavour partly achieved by leveraging off our experience and expertise in Singapore for products, technology, management and customer service. On the conventional treasury advisory business, we expect trade volumes to return and pick up for 2010, and we will work with our business partners to increase lines for customers, especially for FX and swaps. On the structured products front, we have been focusing on short-dated FX-linked investments such as dual currency investments and with the FINIQ system resulting in increased volumes of transactions. We will also look towards increasing our credit investment portfolio to make up for the gapping slowdown, and also continue to fulfil our principal dealer requirements whilst forging closer collaboration with the internal investment banking team to grow JV Income. We would also look to offer a variety of Shariah-compliant treasury products that OCBC Group could replicate where successful. With the commencement of OCBC Al-Amin in December 2008, we have seen continued steady performance of the Islamic banking business for OCBC Group in 2009 where much effort and energy has gone into building our capacity and capability. The Islamic banking entity s pioneering efforts during the year centred, among others, on opening new branches, and offering new products and services such as Islamic wealth management products (deposit products and unit trusts), personal and home financing for the consumer, Islamic cash management solutions for businesses, financing and trade services for businesses, and treasury and investment banking. During 2010, we expect to leverage on the infrastructure within OCBC Group and strong OCBC brand name to broaden our customer base and retain our position as a leading provider of innovative products among foreign Islamic banks. 8

9 DIRECTORS REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009 (continued) RATINGS BY EXTERNAL AGENCIES Having reaffirmed OCBC Bank s long-term rating of AA1 and P1 for short-term rating earlier in the year, RAM Rating Services Berhad ( RAM ) upgraded OCBC Bank to AAA on 4 November The upgrade is an affirmation of OCBC Bank s improving credit fundamentals, supported by superior risk management, as reflected by the commendable operating track record that is underscored by strong profit performance and rigorous credit underwriting framework. CORPORATE GOVERNANCE Board Composition and Independence The Board comprises eight Directors, of whom seven are non-executive Directors. The non-executive Directors are: Tan Sri Dato Nasruddin Bin Bahari (Chairman of the Bank), Mr David Conner, Mr Ching Wei Hong, Ms Tan Siok Choo, Mr Soon Tit Koon, Mr David Wong Cheong Fook and Dr Raja Lope Bin Raja Shahrome. The Executive Director on the Board is Mr Jeffrey Chew Sun Teong who is also the CEO of the Bank. The roles of the Chairman and the CEO have always been separated, which is consistent with the principle of the Revised BNM/GP1 to institute an appropriate balance of power and authority. The Chairman s role in the Board includes scheduling meetings to enable the Board to perform its duties responsibly whilst not interfering with the flow of the Bank s operations; preparing meeting agenda in consultation with the CEO; exercising control over quality, quantity and timeliness of the flow of information between Management and the Board; and assisting in ensuring compliance with guidelines on corporate governance. These pertain to only board proceedings and is not a comprehensive list of all the duties and responsibilities of the Chairman. The Board has four Directors deemed independent, namely, Tan Sri Dato Nasruddin Bin Bahari, Ms Tan Siok Choo, Mr David Wong Cheong Fook and Dr Raja Lope Bin Raja Shahrome. The members of the Board as a group provide core competencies to ensure the effectiveness of the Board. The competencies include banking, accounting, finance, legal, strategic ability, business acumen, management experience and depth, understanding of industry and customer, familiarity with regulatory requirements and knowledge of risk analyses and control. Details of the Directors professional qualifications and background can be found below under Further Information on Directors. As a principle of good corporate governance, all Directors are subject to re-election at regular intervals. The Bank s Articles of Association also provide for the retirement of Directors by rotation and under Bank Negara Malaysia s guidelines, all appointment and re-appointment of Directors have to be approved by Bank Negara Malaysia. Some of the Directors are also members of the Board Board Audit Committee, Nominating Committee and Risk Management Committee and the Board is satisfied that the Directors have been able to devote adequate time and attention to fulfil their duties as Directors of the Bank, in addition to their representation at Board Committees. Board Conduct and Responsibilities The Board is elected by the shareholder to supervise the management of business and affairs of the Bank. The prime stewardship responsibility of the Board is to ensure the viability of the Bank and to ensure that it is managed in the best interest of the shareholder while taking into account the interest of the stakeholders. 9

10 DIRECTORS REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009 (continued) CORPORATE GOVERNANCE (continued) Board Conduct and Responsibilities (continued) Broadly, the responsibilities of the Board include but are not limited to the following: - Reviewing and approving overall business strategy developed and recommended by Management; - Ensuring that decisions and investments are consistent with long-term strategic goals; - Ensuring that the Bank is operated to preserve its financial integrity and in accordance with policies approved by the Board; - Providing oversight in ensuring that the Bank s risk appetite and activities are consistent with the strategic intent, operating environment, effective internal controls, capital sufficiency and regulatory standards; - Overseeing, through the Board Board Audit Committee, the quality and integrity of the accounting and financial reporting systems, disclosure controls and procedures and internal controls; and through the Risk Management Committee the quality of the risk management processes and systems; and - Reviewing any transaction for the acquisition or disposal of assets that is material to the Bank. In 2009, the Board and Risk Management Committee held a total of six meetings each whilst the Nominating Committee and Board Board Audit Committee held a total of two and seven meetings respectively. Prior to each meeting, members are provided with timely and complete information to enable members to fulfil their responsibilities. Information provided includes background information and matters to be addressed by the Board, copies of disclosure documents, monthly internal financial statements, risk management reports, budgets, forecasts and reports of variance from budgets and forecasts. The Board and Board Committees have separate and independent access to the internal auditors, external auditors, the Bank s senior management and the company secretary. The Directors, in addition, could take independent professional advice at the Bank s expense. The Directors receive appropriate structured training which includes introductory information, briefings by senior executives on their respective areas and attending relevant external courses. The Board as a whole also receives briefings on relevant new laws, risk management updates and changes in accounting standards. Board Performance The annual performance evaluation process was established to assess the effectiveness of the Board and Board committees with the formation of the Nominating Committee. Board Audit Committee The Board Audit Committee comprises Tan Sri Dato' Nasruddin bin Bahari, Ms Tan Siok Choo and Mr David Wong Cheong Fook, all of whom are independent Directors. The Committee has written Terms of Reference that describe the responsibilities of its members. The Terms of Reference of the Board Audit Committee is approved by the Board. The Committee has full access to, and co-operation from Management, and has the discretion to invite any Directors and executive officers to attend its meetings. The Board Audit Committee has been given the resources required for it to discharge its functions. It has explicit authority to investigate any matter within its terms of reference. The Board Audit Committee discharges its responsibilities and performs the functions specified in the Companies Act, 1965, the Banking and Financial Institutions Act, 1989 and the Bank Negara Malaysia guidelines. 10

11 DIRECTORS REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009 (continued) CORPORATE GOVERNANCE (continued) Board Audit Committee (continued) The Board Audit Committee may meet at any time with the internal auditors and external auditors. It meets with the Bank's auditors to approve the audit plans and review the scope of audits. The Committee reviews the financial statements of the Bank, related party transactions and the auditors' report thereon and submits them to the Board of Directors. In addition to the review of the financial statements, the Committee reviews and evaluates with the internal auditors and external auditors, the adequacy of the systems of internal controls, governance procedures, risk management and compliance. The reviews include the scope and results of the audits, the cost effectiveness of the audits, and the independence and objectivity of the auditors. The Board Audit Committee receives the requisite disclosures from the external auditors evidencing the latter's independence. It is satisfied that the financial, professional and business relationships between the Bank and external auditors are compatible with maintaining the independence of the external auditors. Internal Audit Function The Board Audit Committee approves the Audit Charter of Internal Audit and reviews the effectiveness of the internal audit function. In line with leading practice, Internal Audit s mission statement requires it to provide independent objective assessments designed to help the Bank to accomplish its strategic initiatives by engaging a risk-based, systematic and disciplined approach to evaluate the adequacy and effectiveness of risk management, control, and governance processes. Its scope of work is to provide reasonable, but not absolute, assurance to the Board Audit Committee and Senior Management that the Bank s system of risk management, control, and governance process, as designed and implemented by senior management, are adequate and effective. Internal Audit reports on the adequacy and effectiveness of the system of controls to the Board Audit Committee and management, but does not form any part of those systems of control. Internal Audit is also expected to meet or exceed the Standards for the Professional Practice of Internal Auditing of The Institute of Internal Auditors, Guidelines on Minimum Audit Standards for Internal Auditors of Financial Institutions (BNM/GP10) of Bank Negara Malaysia, as well as other applicable local regulatory requirements for Internal Audit. Internal Audit adopts a risk-based audit methodology. Annual audit plan is developed using the risk-based approach and is approved by the Board Audit Committee. Audit work is prioritised and scoped in accordance with the risk assessment of the Business Units. This includes all principal risks of the Bank, namely financial, strategic, technology, regulatory and operational risks. Internal Audit works closely with the Business Units to develop an understanding of the Bank s key objectives and processes to identify principal risks. Computerised audit systems and software are adopted to automate audit process, facilitate sampling process and support audit execution. The audit works undertaken by Internal Audit cover internal control systems for business activities, security and access controls for the key computer systems, data integrity, control procedures for product and system projects, and controls over the monitoring of risk management operations. Internal Audit also sits in as an observer in major new product and system developments, process improvement activities and special projects, to help evaluate risk exposures and ensure that proposed mitigating internal controls are adequately evaluated and implemented on a timely basis. It also examines the effectiveness of internal control systems that mitigate risks inherent in recording of transactions, safeguarding of assets, compliance with laws and regulations, and adherence with established policies and procedures. The Board Audit Committee is responsible for the adequacy of the internal audit function, its resources and standing, and ensures that processes are in place for recommendations raised in internal audit reports to be dealt with in a timely manner and outstanding exceptions or recommendations are closely monitored. 11

12 DIRECTORS REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009 (continued) CORPORATE GOVERNANCE (continued) Internal Controls The Board believes that, in the absence of any evidence to the contrary, the system of internal controls maintained by the Bank s management and that was in place throughout the financial year and up to and as of the date of this report, is adequate to meet the needs of the Bank in its current business environment. The system of internal controls provides reasonable, but not absolute assurance that the Bank will not be adversely affected by any event that could be reasonably foreseen as it strives to achieve its business objectives. However, the Board also notes that no system of internal controls could provide absolute assurance in this regard, or absolute assurance against the occurrence of material errors, poor judgement in decisionmaking, human error, losses, fraud or other irregularities. MANAGEMENT INFORMATION All Directors review Board reports prior to the Board meeting. Information and materials, duly endorsed by the CEO, Malaysia and the relevant functional heads that are important to the Directors understanding of the agenda items and related topics are distributed in advance of the meeting. These are issued in sufficient time to enable the Directors to obtain further explanations, where necessary, in order to be briefed properly before the meeting. The Bank will provide information on business, finances and risks to the Directors on a regular basis as well as on an as-required basis. The Board report includes, among others, the following: 1. Minutes of meetings of all Committees of the Board 2. Monthly Performance Report of the Bank 3. At least quarterly Credit Risk Management Report 4. At least quarterly Asset Liability & Market Risk Report 5. At least quarterly Operational Risk Management Report 6. Half yearly Industry Benchmarking Report (includes trend analysis, customer satisfaction, product and services quality, and market share) The Board provides input on Bank policies from the Malaysia perspective in line with the prevailing regulatory framework, economic and business environment. DIRECTORS ATTENDANCE AT BOARD AND BOARD COMMITTEE MEETINGS IN 2009 Number of Meetings attended in 2009 Name of Director Board Board Audit Committee Nominating Committee Risk Management Committee Held Attended Held Attended Held Attended Held Attended Tan Sri Dato Nasruddin Bin Bahari David Conner Ching Wei Hong Soon Tit Koon Tan Siok Choo David Wong Cheong Fook Dr Raja Lope Bin Raja Shahrome Chew Sun Teong The Bank s Articles of Association provide for Directors to participate in Board and Board Committee meetings by means of telephone conference, video conferencing or audio visual equipment. 12

13 DIRECTORS REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009 (continued) CORPORATE GOVERNANCE (continued) FURTHER INFORMATION ON DIRECTORS Profile of the Board of Directors Tan Sri Dato Nasruddin Bin Bahari, Chairman Tan Sri Dato Nasruddin was appointed to the Board on 23 January He holds a Bachelor of Arts with Honours from the University of Malaya and a Master of Public Administration from the University of Pittsburgh, USA. Apart from being Chairman of the Bank, he is also Chairman of OCBC Al-Amin, Affin Moneybrokers Sendirian Berhad, The Pacific Insurance Berhad, PacificMas Berhad, OCBC Credit Berhad, OCBC Advisers (Malaysia) Sdn Bhd and Sumber Petroleum Cemerlang (SPC) Sendirian Bhd and a Director of Great Eastern Life Assurance (Malaysia) Berhad, Lingkaran Transkota Holdings Bhd ( LITRAK ) and IJM Land Berhad. Mr David Conner Mr David Conner was appointed to the Board on 25 September He has extensive banking experience in the Asia Pacific region, having worked for over 25 years with Citibank, N.A. where he served as Managing Director and Market Manager for Citibank Japan from He was also Chief Executive Officer of Citibank India from 1996 to 1999 and prior to that was Country Corporate Officer for Citibank s Singapore operations. He joined Oversea-Chinese Banking Corporation Limited ( OCBCL ) in April 2002 as a Director and Group Chief Executive Officer and is presently Chairman of Bank of Singapore Limited, a Commissioner of PT Bank OCBC NISP Tbk and a Director of several companies, including OCBC Al-Amin, Great Eastern Holdings Limited and Lion Global Investors Ltd. Mr Conner holds a Bachelor of Arts from Washington University in St Louis and a Master of Business Administration from Columbia University. Mr Ching Wei Hong Mr Ching was appointed to the Board on 20 June He is also the Senior Executive Vice President of OCBCL. He oversees the Group's Finance, Operations and Technology functions. His responsibilities as Chief Financial Officer include capital management, financial and management accounting, legal and regulatory compliance and investor relations. As Head of Group Operations and Technology, he oversees the Group's transaction processing and technology operations. Mr Ching has more than 25 years of experience in regional finance, corporate banking and cash management. Before joining the Group, he was Director of Corporate Finance, Philips Electronics Asia Pacific Pte Ltd. He also held senior regional assignments in Bank of America and was Treasurer of Union Carbide Asia Pacific. Mr Ching holds a Bachelor of Business Administration from the National University of Singapore. He is also presently a Director of OCBC Al-Amin, Network for Electronic Transfers (S) Pte Ltd (NETS), E2 Power Pte Ltd, E2 Power Sdn Bhd and OCBC Overseas Investment Pte Ltd. Mr Soon Tit Koon Mr Soon was appointed to the Board on 19 June He was the Chief Financial Officer of OCBCL from 2002 to June 2008 and was appointed Senior Executive Vice President in April He is now the Head of Group Investments responsible for managing OCBC Bank's strategic investments and joint ventures, as well as noncore investments in equities and real estate. He was formerly the Chief Financial Officer of Wilmar Holdings and Managing Director of Citicorp Investment Bank, Singapore where he worked for 17 years. Mr Soon holds a Bachelor of Science with Honours from the University of Singapore and a Master of Business Administration from the University of Chicago. 13

14 DIRECTORS REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009 (continued) CORPORATE GOVERNANCE (continued) Profile of the Board of Directors (continued) Ms Tan Siok Choo Ms Tan was appointed to the Board on 27 July Ms Tan holds a Bachelor of Law from the University of Bristol, passed her Bar Finals at College of Law, London and was admitted as a Barrister-at-law in Lincoln s Inn, London and the Malaysian Bar. She is presently Vice-President and Editor of Noordin Sopiee & Associates Sdn Bhd and a visiting fellow at the Institute of Strategic and International Studies (ISIS) with specific interests in the Malaysian economy, the financial sector and capital markets. She also serves as a Director of OCBC Al-Amin, United Malacca Bhd and several other private companies. She has extensive experience in the financial services industry, having worked for almost 10 years in stockbroking and banking as a senior research analyst for Rashid Hussain Securities, senior investment analyst at Morgan Grenfell Asia & Partners Securities and Head of Corporate Finance at Southern Bank Berhad. Mr David Wong Cheong Fook Mr David Wong was appointed to the Board on 30 March He is presently Chairman of Ascendas Funds Management (S) Ltd and a Director of OCBC Al-Amin, PacificMas Berhad, Pacific Mutual Fund Berhad, The Pacific Insurance Berhad, Banking Computer Services Pte Ltd, Teva Pharmaceutical Investments Singapore Pte Ltd, Jurong International Holdings Pte Ltd, LMA International NV and Energy Market Company Pte Ltd. He also serves as a Member of the Casino Regulatory Authority of Singapore and the Board of the National Environment Agency. He holds a Bachelor of Arts with Honours in Economics and a Master of Arts from the University of Cambridge. He is also a Member of the Institute of Chartered Accountants in England and Wales and the Institute of Certified Public Accountants of Singapore. Dr Raja Lope Bin Raja Shahrome Dr Raja Lope was appointed to the Board on 10 March He holds an Honours Degree in Economics from the University of Malaya in Singapore, an MA from the University of Pennsylvania and a PhD from the London School of Economics. His working experience was mainly with central and commercial banking except for a few years when he was working in a rating agency. He currently sits on the Board of Directors/Governors of OCBC Al-Amin, PacificMas Berhad, First Nationwide Holdings Sdn Bhd, Standard London (Asia) Sdn Bhd and several other private companies. Mr Chew Sun Teong, Jeffrey Mr Jeffrey Chew was appointed to the Board on 8 August He is also a Director of OCBC Al-Amin, E2 Power Sdn Bhd, PacificMas Berhad, Pac Lease Sdn Bhd and SME Credit Bureau (M) Sdn Bhd. He started his career with PriceWaterhouseCoopers in 1987 involved in corporate audit and taxation for 4 years prior to joining Citibank Malaysia. During his 12-year career with Citibank, he held various positions in the areas of customer relationship in corporate, commercial and SMEs, international offshore banking and risk management. Prior to joining OCBC Bank April 2003, his last held position was General Manager of Commercial/SME banking business and Director of Citicorp Capital Sdn Bhd. He is a qualified accountant and a fellow member of the Association of Chartered Certified Accountants, UK. 14

15 DIRECTORS REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009 (continued) DIRECTORS AND THEIR INTEREST IN SHARES AND OPTIONS The Directors of the Bank in office during this period since the date of the last report are as follows:- Tan Sri Dato Nasruddin Bin Bahari (Chairman) David Philbrick Conner Ching Wei Hong Soon Tit Koon Tan Siok Choo (f) David Wong Cheong Fook Dr Raja Lope Bin Raja Shahrome Chew Sun Teong In accordance with Articles 106 and 107 of the Bank s Articles of Association, Mr Ching Wei Hong and Mr David Wong Cheong Fook shall retire at the forthcoming Annual General Meeting and being eligible, offered themselves for re-election. In accordance with Section 129(6) of the Companies Act, 1965, Tan Sri Dato Nasruddin Bin Bahari and Dr Raja Lope Bin Raja Shahrome who have attained 70 years of age, offered themselves for re-appointment at the forthcoming Annual General Meeting. According to the register of Directors shareholdings maintained by the Bank in accordance with Section 134 of the Companies Act 1965, the Directors beneficial interests at the end of the financial year in the shares of the Bank and its related corporations were as follows:- Oversea-Chinese Banking Corporation Limited Shareholdings registered in the name of Directors or in which Directors have a direct interest Ordinary Shares As at Acquired Disposed As at David Conner 1,120, , ,000 1,333,094 Ching Wei Hong 50,531 18,420 20,000 48,951 Soon Tit Koon 211,802 70, ,000 97,491 Tan Sri Dato Nasruddin Bin Bahari 19, ,200 David Wong Cheong Fook 28,400 6,362 6,000 28,762 Chew Sun Teong 17,917 31,917 45,000 4,834 15

16 DIRECTORS REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009 (continued) DIRECTORS AND THEIR INTEREST IN SHARES AND OPTIONS (continued) Oversea-Chinese Banking Corporation Limited Shareholdings registered in the name of Directors or in which Directors have a direct interest (continued) Class G Preference Shares As at Acquired Disposed As at David Conner 50, ,000 Class B Preference Shares Ching Wei Hong 2, ,500 Shareholdings in which Directors have deemed interest OCBC Deferred Share Plan and As at Acquired Disposed As at OCBC Employee Share Purchase Plan David Conner 401, , , ,967 Ching Wei Hong 65,792 53,498 15, ,742 Soon Tit Koon 226, ,798 67, ,020 Chew Sun Teong 38,525 37,593 6,823 69,295 Ordinary Shares Tan Siok Choo 3,530, , ,686,473 Class G Preference Shares Tan Siok Choo 735, ,532 The unexercised share options available to the Directors under the OCBC Executives' Share Option Scheme are as follows:- Number of share options held by Directors in their own name As at Offered Exercised As at Date option expire David Conner 3,845, ,000 3,053,000 8/4/ /3/2018 Ching Wei Hong 252,280 75, ,280 14/3/ /3/2019 Soon Tit Koon 848, , ,000 8/4/ /3/2019 Chew Sun Teong 102,000 40,000 25, ,000 13/3/ /3/

17 DIRECTORS REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009 (continued) DIRECTORS AND THEIR INTEREST IN SHARES AND OPTIONS (continued) OCBC Capital Corporation Limited ( OCC ) Non-cumulative non-convertible guaranteed OCC-A-Preference Shares Number of preference shares with liquidation value of S$100 each Shareholdings in which Directors have deemed interest As at Acquired Disposed As at Soon Tit Koon 10, ,000 Non-cumulative Non-convertible guaranteed OCC (2008) Preference Shares David Wong Cheong Fook Other than the above, no other Directors in office during the financial year held any interest in shares, options and debentures of the Bank and its related corporations. DIRECTORS BENEFITS During and at the end of the financial year, no Director of the Bank has received nor become entitled to receive any benefit (other than the benefit included in the aggregate amount of emoluments received or due and receivable by Directors as shown in Note 25 to the financial statements, or the fixed salary of full-time employees of the Bank or related companies) by reason of a contract made by the Bank or a related corporation with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest. 17

18 DIRECTORS REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009 (continued) DIRECTORS BENEFITS (continued) Neither at the end of the financial year, nor at any time during the financial year, did there subsist any arrangements to which the Bank is a party whereby Directors might acquire benefits by means of the acquisition of shares in, or debenture of, the Bank or any other body corporate except for the share options granted to executives of OCBCL pursuant to the OCBC Executives Share Option Scheme, shares granted under the OCBC Deferred Share Plan which will vest three years from the grant date and will lapse when the Director ceases employment during the vesting period and acquisition rights under the OCBC Employee Share Purchase Plan. ULTIMATE HOLDING COMPANY The Directors regard Oversea-Chinese Banking Corporation Limited, a licensed commercial bank incorporated in Singapore, as the ultimate holding company of the Bank. AUDITORS Our auditors, Messrs KPMG, have expressed their willingness to accept re-appointment. In accordance with a resolution of the Board of Directors dated 02 March TAN SRI DATO NASRUDDIN BIN BAHARI DIRECTOR CHEW SUN TEONG DIRECTOR Kuala Lumpur 18

19 STATEMENT BY DIRECTORS PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965 In the opinion of the Directors, the financial statements set out on pages 22 to 104 are drawn up in accordance with the provisions of the Companies Act, 1965, and Financial Reporting Standards as modified by Bank Negara Malaysia Guidelines so as to give a true and fair view of the financial position of the Group and the Bank as at 31 December 2009 and of their financial performances and cash flows for the year ended on that date. In accordance with a resolution of the Board of Directors dated 02 March TAN SRI DATO NASRUDDIN BIN BAHARI DIRECTOR CHEW SUN TEONG DIRECTOR Kuala Lumpur STATUTORY DECLARATION PURSUANT TO SECTION 169(16) OF THE COMPANIES ACT, 1965 I, Tan Fong Sang, the officer primarily responsible for the financial management of OCBC Bank (Malaysia) Berhad, do solemnly and sincerely declare that the financial statements set out on pages 22 to 104 are, to the best of my knowledge and belief, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, Subscribed and solemnly declared at ) Kuala Lumpur in Wilayah Persekutuan ) On 02 March 2010 ) TAN FONG SANG Before me, TAN BOON CHUA COMMISSIONER FOR OATHS 19

20 INDEPENDENT AUDITORS REPORT TO THE MEMBER OF Company No W Report on the Financial Statements We have audited the financial statements of OCBC Bank (Malaysia) Berhad, which comprise the balance sheets as at 31 December 2009 of the Group and the Bank, and the income statements, statements of changes in equity and cash flow statements of the Group and of the Bank for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 22 to 104. Directors Responsibility for the Financial Statements The Directors of the Bank are responsible for the preparation and fair presentation of these financial statements in accordance with the Companies Act, 1965 and Financial Reporting Standards in Malaysia as modified by Bank Negara Malaysia Guidelines. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Bank s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 20

21 Opinion In our opinion, the financial statements have been properly drawn up in accordance with the Companies Act, 1965 and Financial Reporting Standards in Malaysia as modified by Bank Negara Malaysia Guidelines so as to give a true and fair view of the financial position of the Group and of the Bank as of 31 December 2009 and of their financial performance and cash flows for the year then ended. Report on Other Legal and Regulatory Requirements In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following: a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Bank and its subsidiaries have been properly kept in accordance with the provisions of the Act. b) We are satisfied that the accounts of the subsidiaries that have been consolidated with the Bank s financial statements are in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group and we have received satisfactory information and explanations required by us for those purposes. c) Our audit reports on the accounts of the subsidiaries did not contain any qualification or any adverse comment made under Section 174(3) of the Act. Other Matters This report is made solely to the members of the Bank, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. KPMG Firm Number: AF 0758 Chartered Accountants Foong Mun Kong Approval Number: 2613/12/10(J) Chartered Accountant Petaling Jaya, Selangor. Date: 02 March